"Yahoo! , You dont love me. You can leave now!" said by Microsoft.

Afterover three months, we have reached the conclusion of the processregarding a possible combination of Microsoft and Yahoo!.

Ifirst want to convey my personal thanks to you, your management team,and Yahoo!’s Board of Directors for your consideration of our proposal.I appreciate the time and attention all of you have given to thismatter, and I especially appreciate the time that you have investedpersonally. I feel that our discussions this week have beenparticularly useful, providing me for the first time with real clarityon what is and is not possible.

I am disappointed that Yahoo! hasnot moved towards accepting our offer. I first called you with ouroffer on January 31 because I believed that a combination of our twocompanies would have created real value for our respective shareholdersand would have provided consumers, publishers, and advertisers withgreater innovation and choice in the marketplace. Our decision to offera 62 percent premium at that time reflected the strength of theseconvictions.

In our conversations this week, we conveyed ourwillingness to raise our offer to $33.00 per share, reflecting againour belief in this collective opportunity. This increase would haveadded approximately another $5 billion of value to your shareholders,compared to the current value of our initial offer. It also would havereflected a premium of over 70 percent compared to the price at whichyour stock closed on January 31. Yet it has proven insufficient, asyour final position insisted on Microsoft paying yet another $5 billionor more, or at least another $4 per share above our $33.00 offer.

Also,after giving this week’s conversations further thought, it is clear tome that it is not sensible for Microsoft to take our offer directly toyour shareholders. This approach would necessarily involve a protractedproxy contest and eventually an exchange offer. Our discussions withyou have led us to conclude that, in the interim, you would take stepsthat would make Yahoo! undesirable as an acquisition for Microsoft.

Weregard with particular concern your apparent planning to respond to a“hostile” bid by pursuing a new arrangement that would involve or leadto the outsourcing to Google of key paid Internet search terms offeredby Yahoo! today. In our view, such an arrangement with the dominantsearch provider would make an acquisition of Yahoo! undesirable to usfor a number of reasons:

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First,it would fundamentally undermine Yahoo!’s own strategy and long-termviability by encouraging advertisers to use Google as opposed to yourPanama paid search system. This would also fragment your searchadvertising and display advertising strategies and the ecosystemsurrounding them. This would undermine the reliance on your displayadvertising business to fuel future growth.

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Giventhis, it would impair Yahoo’s ability to retain the talented engineersworking on advertising systems that are important to our interest in acombination of our companies.

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Inaddition, it would raise a host of regulatory and legal problems thatno acquirer, including Microsoft, would want to inherit. Among otherthings, this would consolidate market share with the already-dominantpaid search provider in a manner that would reduce competition andchoice in the marketplace.

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Thiswould also effectively enable Google to set the prices for key searchterms on both their and your search platforms and, in the process,raise prices charged to advertisers on Yahoo. In addition to whateverresulting legal problems, this seems unwise from a business perspectiveunless in fact one simply wishes to use this as a vehicle to exit thepaid search business in favor of Google.

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Itcould foreclose any chance of a combination with any other searchprovider that is not already relying on Google’s search services.

Accordingly,your apparent plan to pursue such an arrangement in the event of aproxy contest or exchange offer leads me to the firm decision not topursue such a path. Instead, I hereby formally withdraw Microsoft’sproposal to acquire Yahoo!.

We will move forward and willcontinue to innovate and grow our business at Microsoft with thetalented team we have in place and potentially through strategictransactions with other business partners.

I still believe eventoday that our offer remains the only alternative put forward thatprovides your stockholders full and fair value for their shares. Byfailing to reach an agreement with us, you and your stockholders haveleft significant value on the table.